Business-labor partnership tackles wage theft on public projects

WorkdayMinnesota.org has completed a several months long study on wage theft in Minnesota. The problem is pervasive and widespread throughout the state in many types of work. Two of the studies focused on wage theft in non-union sectors of the building and construction trades. This article addresses partnerships between contractors and building trades unions using prevailing wage as a model.

A joint effort between contractors and building trades unions has led to stronger enforcement of state laws on public construction – making a big dent in cheating and recovering nearly $1 million in stolen wages and benefits.

The partnership could be a model for addressing wage theft in other industries.

The federal government adopted wage standards for taxpayer-funded construction projects in 1931, when President Herbert Hoover signed the Republican-authored Davis-Bacon Act. In the decades since, many states, including Minnesota, and many local communities have followed suit.

Known as “prevailing wage(link is external)” laws, these regulations require contractors bidding on publicly funded projects to pay wages and benefits in line with those of a particular location. In Minnesota, the state conducts surveys to determine the prevailing wages for different communities.

“If there are no standards with respect to wages, then the government finds itself procuring construction services from whoever can find the cheapest labor and the cheapest labor is usually unskilled labor, is usually less-safe labor, is almost always less quality labor, so that’s reflected in the end product,” said Mike Wilde, executive director of the Fair Contracting Foundation(link is external).

“So, rather than subject themselves to that complete race to the bottom, they have these standards and it ensures a quality product and quality service.”

While the laws have been on the books for many years, enforcement has lagged, mainly due to a lack of inspectors at both the federal and state level. So about five years ago, unions and contractors in Minnesota came together to form the Fair Contracting Foundation, a non-profit that promotes prevailing wage law education, compliance and enforcement.

“One of the reasons for the Fair Contracting Foundation in the first place is that the state isn’t able to allocate all the resources to cover the state effectively,” notes Matt Marquis, a trustee and employer representative on the Foundation. “So, the Fair Contracting Foundation goes out, finds evidence of a prevailing wage violation, or is able to educate people, another aspect the state isn’t able to do, and comes back and present that information right to the state” so the law can be enforced.

Michael Cook, a trustee and union representative on the Foundation, concurs.

“The Fair Contracting Foundation, with Mike Wilde and his team, have been able to recover tens of thousands of dollars for the workers of this state on projects where they should have been paid the prevailing wage all along,” he said. “That’s a win for us and that’s a win for the state of Minnesota, we believe.”

Catching the cheaters

Records obtained by Workday Minnesota from the state Department of Labor and Industry(link is external) for the past five years illustrate the effect of the Foundation’s work. A large percentage of the cases successfully investigated by the department involve the prevailing wage.

Violations range from failure to pay the appropriate wage or overtime to fraudulently reporting hours and paying cash under the table. In rare cases, companies have used child labor. Wage recovery in these cases has ranged from a few hundred dollars to tens of thousands of dollars.

Wilde recalls that, in his first week on the job at the Foundation, “We saw a western suburb elementary school being built for cash under the table, far below the wage standard. I will also say it was one of the most unsafe and poor workmanship that the people in the trades had seen for years, and that was on a public school.

“And when we brought it to the attention of the people that would enforce that contract, the contractor picked up all the equipment and left in the middle of the night. That’s a public project. So you would expect that maybe on your neighbor’s deck – hopefully not – but not on a public school.”

In another case, Wilde described how the Foundation nailed a contractor working on a military project “who had bragged to people that prevailing wage wasn’t an issue, moreover, he hadn’t paid anybody on his staff unemployment for 30 years . . . He used out-of-state workers, four of them, and paid them less than half of the prevailing wage standard. We found them – two in Georgia, one in Colorado, one in another state – and talked to them. They told us exactly what they got paid, exactly when they worked and we shared that with the state. That contractor ended up paying some penalties and paying what he should have owed.”

Records show violations have occurred in the most unlikely places -- $536 in back wages paid in 2014 for misclassifying workers on a project at the Governor’s mansion, for example – and at large institutions such as the University of Minnesota and MNSCU.

The most frequent violations, Wilde believes, occur in local school districts, where communities lack the experience or resources to enforce the law.

How it’s done

Tips from workers and others sometimes lead the Foundation to investigate particular projects, but much of its success is due to old-fashioned legwork. Staff members attend public, pre-bid meetings and ask questions about the law, so all bidders know it applies and “there’s going to be some compliance,” Wilde said.

Once a bid is awarded, the Foundation can access the payroll records, which are public, to investigate whether wage theft is occurring. Staff also make presentations around the state about the prevailing wage and related laws.

The goal, trustee Marquis said, is to ultimately reduce the number of violations.

“The hope was that you’d first see an increase, a spike in total violations, just because we’re catching more people, but then … see the decrease due to education,” he said.

The Foundation seeks a system that is fair to both contractors and their employees, Marquis said.

“We’re trying to level the playing field” so that all contractors can compete fairly for public projects, he said.

Demanding more accountability

While the Foundation cites a record of success in bringing cases to state and federal authorities for enforcement, work still remains, Wilde said. One problem has been the bidding process itself, he noted.

The law calls for projects to be awarded to the “lowest responsible bidder.”

“No one has any trouble figuring out what the ‘lowest’ is, but ‘responsible’ has never really been defined. So, it was really just the lowest bid,” said Wilde.

In 2014, the Legislature passed the Responsible Contractor Law, which took effect Jan. 1, 2015. It requires bidders on public projects to sign a statement that they are complying with laws such as paying the prevailing wage and providing workers’ compensation and unemployment compensation to employees.

Contractors that violate the law can be disqualified from bidding on future projects.

“Prior to that, there were no consequences,” said Wilde. “It was an interest-free loan from the government … in other words, if you cheated and you got caught, you had to pay what you otherwise should have paid under the law. That was it. Once in a while, there are a few penalties, but very rare. And then the contractor could get in line for the next bid.”

The Foundation now routinely checks public project specifications to ensure they include the Responsible Contractor Law requirements.

In Minnesota, prevailing wage violations appear to be the only wage theft matters that have resulted in criminal prosecutions. Hennepin County Attorney Mike Freeman has brought criminal cases against electrical and trucking firms that stole tens of thousands of dollars from their employees.

“Unfortunately, some contractors deliberately refuse to pay the legal prevailing wages on some projects,” Freeman said at a news conference in 2013. “That cheats workers and the responsible contractors who follow the law. We in the Hennepin County Attorney’s Office take these cases very seriously and will continue to prosecute them aggressively.”